Apple: Fairest No More

By now, most investors have digested a plethora of analysis on Apple's disappointing results for Q4 2012 and its low key guidance for Q1 2012. Excuse us for joining the chorus so late. Those of us on the west of coast just don't get up that early.

Compared to Apple's own guidance, the company had a blowout quarter. To wit:

Actual revenue of $54.5 billion ahead of $52 billion guidance.
Acutal EPS of $13.81per share far surpassed $11.75 guidance.

Of course, Apple has been eclipsing its own guidance by such large amount no investor now believes it.  On the conference call, it indicated that its previous earnings guidance had always been conservative, but going forward, it is now providing guidance as a range that its results will likely fall between. It is this guidance, if indeed realistic, that is the most troublesome. Apple now calls for first quarter revenue to fall between $4.1 to $4.3 billion, which represents a growth rate between 4.6% to 9.7% over Q1 2012 results. This compares to the just reported quarterly revenue growth rate of 17.6% and previous four quarters' growth rates of 27.2%, 22.6%, 58.9% and 73.3%. If the new guidance does reflect the company's true expectation, then Apple has just transitioned from a growth company to a cash flow company. Companies seldom make such transitions gracefully. However, to remain a growth company, Apple is in desperate need of a third leg so that it can re-accelerate growth. By a third leg, of course we mean a new product beyond iphone and ipad. Could that be Apple TV?

That is the $64 question.